St George Economics economy and finance update
European markets reacted negatively to news that the French services sector continued to contract while at the same time the European Central Bank (ECB) noted that economic activity across the Eurozone had weakened further.
The French market fell 0.8%, the Dax was down 0.7% and the FTSE100 fell 1.2%. TheDow struck a slightly brighter note and rose 0.4%.
The weak economic news saw demand for treasuries rise (yields fall). German 10 year government bond yields fell to 1.24%, a level not seen since mid-2012. Similarly, US long bond yields fell to 1.76%. In Australia, 10 year bond yields stood at 3.40%, well down on the recent, mid-March high of 3.68%.
The AUD slipped against the USD in early US trade but picked up later in the session to open a touch lower than yesterday morning.
With the BoJ announcing further asset purchases (see below), the AUD lifted against yen with the yen and the Australian cent now at parity.
Oil slipped further overnight on the back of European economic weakness, however, copper rebounded from an eight month low on the prospect that the ECB may implement some 'non-standard' mechanisms to stimulate European growth. Gold edged marginally lower.
Retail sales rose 1.3% in February with January's already strong 0.9% gain revised up to a 1.2% increase. This was far stronger than market expectation of a 0.3% rise.
Taken together, the January and February gains mark the strongest back to back rises since April 2009 when aggressive interest rate cuts and $20bn in fiscal handouts helped lift retail spending.
Dwelling approvals were up 3.1% in February to be up 12.8% over the year. The result continues the trend improvement seen in recent months.
The ECB remained on hold at 0.75% overnight. The ECB chief Draghi was clearly aware of crystallising risks across much of Europe.
He emphasised downside risks to the outlook in his introductory statement, which included comments regarding "even weaker" than expected demand.
He said the Council was "monitoring closely" the situation and that policy settings were appropriate "for the time being" although a rate cut was discussed extensively.
The Eurozone services PMI was revised down from 46.5 to 46.4 in March, with both the German and French indices revised down, the former now at 50.9, the latter at 41.3, just 1.1 pts above the low point during the deep recession of 2008/09.
The French economy is almost certainly in recession again, for the second time since the start of last year. In other news, the PPI eased to a new cycle low of 1.3% in the year to February.
The Bank of Japan released details of its 'quantitative and qualitative monetary easing' program. The plan includes increasing monthly Japanese bond purchases, lengthening their maturity and replacing the main operating target of the overnight call rate with a monetary base target.
The Bank of England kept its official rate on hold at 0.50% overnight and its asset purchase program was maintained at £375bn.
The UK services PMI rose from 51.8 to 52.4 in March, its highest reading since August last year and contrasting with the sub-50 readings for the construction and factory PMIs.
US initial jobless claims jumped 28k to 385k in the week coinciding with the Easter and Spring Break holidays.
This was the highest reading for the year but may be more to do with seasonal adjustment issues than underlying job market deterioration.
However, Challenger reported that corporate layoff announcements were up 30% in the year to March.
Please read the disclaimer below (to enlarge, press ctrl-+ on modern browsers)
The information contained in this report (the Information) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom St.George has a contract to supply Information, the supply of the Information is made under that contract and St.George's agreed terms of supply apply. St.George does not represent or guarantee that the Information is accurate or free from errors or omissions and St.George disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to St. George products and details are available. St.George or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. St.George owns copyright in the Information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of St.George.